Tuesday, December 15, 2009

Low to High, Instead of High To Low

The post today on the horseplayer blog (via an article on Colin's Ghost) shows that when the pari-mutuel system was started, way back in 1908 the takeout was 5%. That got me thinking about what happened.

Racing was a monopoly in 1908 - want to gamble, go bet the races. Usually monopolies charge as high a price as they can, then competition steps in, or the government does (slapping you down for an unfair practice), and the price is lowered. Instead racing, like all too often, seemed to have turned this on its head. They charged what they thought would make them the most money (I think they knew about churn and customer retention in 1908) and kept it there. Until, of course, they saw that being a monopoly meant they could charge more with some impunity. In the 1930's we were up to 8% take, 10% in the 1950's all the way up to 22% today. When they were the only game in town, their prices were over 400% lower than when they are not the only game in town.

Nothing should surprise us in racing, but that really does. They operated like a capitalistic business in 1908 when they were protected, and now in 2009 when they should be operating as a capitalist business (with a plethora of competition), they act like they are monopolists.

I have said it before, but I truly do believe that 50 years from now racing will be studied in MBA programs across the entire planet as a case study on "ass-backwardness" in business.

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